# RELIANCE INDUSTRIES .LIMITED & ANR v. UNION OF INDIA

- **Citation:** [2014] 6 S.C.R. 456
- **Court:** Supreme Court of India
- **Decided:** 2014-05-28
- **Case number:** Civil Appeal No.5765 of 2014
- **Bench:** Surinder Singh Nijjar, A.K. Sikri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/reliance-industries-limited-anr-v-union-of-india-30070
- **Pages:** 58

## Headnote

Arbitration and Conciliation Act, 1996 - ss. 16 and 34 -
Applicability of the Act - Arbitration petition u/s. 34 -
C Maintainability of - Parties-appellants entering into two
Product Sharing Contracts (PSCs) with the Government of
India, providing for exploration and production of petroleum
- Disputes between parties regarding payments of royalties,
cess, service tax and GAG audit report- Notice of arbitration
D - Constitution of arbitral tribunal - Under Article 33. 12 of
PSCs, the venue of arbitration would be London -
Amendment in the PSC, by agreement of the parties, Final
Partial Consent Award by arbitral tribunal that juridical seat
for arbitration would be London, England - 'Final Partial Award
E that appellants' claims are arbitrable - Petition uls. 34 by
respondent challenging Final Partial Award -Allowed by High
Court holding that the arbitration petition was maintainable -
On appeal, held: Petition uls. 34 is riot maintainable -
Applicability of Arbitration Act, 1996 to the arbitration
F agreement has been excluded - It cannot be said that even
though the arbitration agreement would be governed by the
laws of England and that juridical seat of arbitration would be
in London, Part I of the Arbitration Act would stiff be applicable
as the laws governing the substantive contract are Indian
Laws - Upon a meaningful reading of the said Articles of the
G PSC, that the proper law of the contract is Indian Law; proper
law of the arbitration agreement is the law of England -
Applicability of Arbitration Act, 1996 has been ruled out by a
H
456
RELIANCE INDUSTRIES LIMITED v. U.0.1.
457
conscious decision and agreement of the parties - In the
A
event, final award is made against the respondent, the
. enforceability of the same in India, can be resisted on the
ground of Public Policy- Remedy against the award will have
to be sought in England, where the juridical seat is located -
International Commercial Arbitration.
s
Doctrines/Principles - Principle of separability - Held:
Permits the parties to agree that law of one coμntry would
govern to the substantive contract and laws of another country
would apply to the arbitration agreement.
The appellant and one 'BG' Exploration and
Production India Ltd. entered into two Production
Sharing Contracts (PSCs) with the Government of India
for the exploration and prod:uction of petroleum from
certain oil fields. Disputes arose between the parties with
. regard to payment of royalties, cess, service tax and CAG
audit report. The appellant issued a notice of arbitration.
The arbitral tribunal was duly constituted. Under Article
33.12, the venue of arbitration is in London. Thereafter,
on the basis of the amendment in the PSC, by agreement
of the parties, the arbitral tribunal made the 'Final Partial
Consent Award' that the juridical seat (or legal place) for
the purposes of the arbitration shall be London, England.
The respondent raised objections relating to the
arbitrability of the claims made by the petitioner. By the
Final Partial Award, it was held that the petitioners' claims
c
D
E
F
are arbitrable. The respondent filed a petition under
Section 34 of the Arbitration and Conciliation Act, 1996
challenging the Final Partial Award. The High Court
allowed the petition .holding that the governing law of the
G
contract, is the law of India; and that the English law
would be applicable only with regard to curial law matters,
conduct of the arbitral proceedings; that the question of
arbitrability of the claim is a larger question effecting
public policy of State and it should be determined by
H
458
SUPREME COURT REPORTS
[2014] 6 ·s.C.R.
A applying laws of India; that the intention of the parties
~mder the agreement was always to remain subject to
Indian laws and not to contravene them; that an award
which is said to be against public policy can be permitted
to be challenged in India even though the seat of
8 arbitration is outside India; and that since the appellants
are seeking refund of a

## Text

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A
B
[2014] 6 S.C.R. 456
RELIANCE INDUSTRIES .LIMITED & ANR.
V.
UNION OF INDIA
(Civil Appeal No.5765 of 2014)
MAY 28, 2014
[SURINDER SINGH NIJJAR AND A.K. SIKRI, JJ.)
Arbitration and Conciliation Act, 1996 - ss. 16 and 34 -
Applicability of the Act - Arbitration petition u/s. 34 -
C Maintainability of - Parties-appellants entering into two
Product Sharing Contracts (PSCs) with the Government of
India, providing for exploration and production of petroleum
- Disputes between parties regarding payments of royalties,
cess, service tax and GAG audit report- Notice of arbitration
D - Constitution of arbitral tribunal - Under Article 33. 12 of
PSCs, the venue of arbitration would be London -
Amendment in the PSC, by agreement of the parties, Final
Partial Consent Award by arbitral tribunal that juridical seat
for arbitration would be London, England - 'Final Partial Award
E that appellants' claims are arbitrable - Petition uls. 34 by
respondent challenging Final Partial Award -Allowed by High
Court holding that the arbitration petition was maintainable -
On appeal, held: Petition uls. 34 is riot maintainable -
Applicability of Arbitration Act, 1996 to the arbitration
F agreement has been excluded - It cannot be said that even
though the arbitration agreement would be governed by the
laws of England and that juridical seat of arbitration would be
in London, Part I of the Arbitration Act would stiff be applicable
as the laws governing the substantive contract are Indian
Laws - Upon a meaningful reading of the said Articles of the
G PSC, that the proper law of the contract is Indian Law; proper
law of the arbitration agreement is the law of England -
Applicability of Arbitration Act, 1996 has been ruled out by a
H
456
RELIANCE INDUSTRIES LIMITED v. U.0.1.
457
conscious decision and agreement of the parties - In the
A
event, final award is made against the respondent, the
. enforceability of the same in India, can be resisted on the
ground of Public Policy- Remedy against the award will have
to be sought in England, where the juridical seat is located -
International Commercial Arbitration.
s
Doctrines/Principles - Principle of separability - Held:
Permits the parties to agree that law of one coμntry would
govern to the substantive contract and laws of another country
would apply to the arbitration agreement.
The appellant and one 'BG' Exploration and
Production India Ltd. entered into two Production
Sharing Contracts (PSCs) with the Government of India
for the exploration and prod:uction of petroleum from
certain oil fields. Disputes arose between the parties with
. regard to payment of royalties, cess, service tax and CAG
audit report. The appellant issued a notice of arbitration.
The arbitral tribunal was duly constituted. Under Article
33.12, the venue of arbitration is in London. Thereafter,
on the basis of the amendment in the PSC, by agreement
of the parties, the arbitral tribunal made the 'Final Partial
Consent Award' that the juridical seat (or legal place) for
the purposes of the arbitration shall be London, England.
The respondent raised objections relating to the
arbitrability of the claims made by the petitioner. By the
Final Partial Award, it was held that the petitioners' claims
c
D
E
F
are arbitrable. The respondent filed a petition under
Section 34 of the Arbitration and Conciliation Act, 1996
challenging the Final Partial Award. The High Court
allowed the petition .holding that the governing law of the
G
contract, is the law of India; and that the English law
would be applicable only with regard to curial law matters,
conduct of the arbitral proceedings; that the question of
arbitrability of the claim is a larger question effecting
public policy of State and it should be determined by
H
458
SUPREME COURT REPORTS
[2014] 6 ·s.C.R.
A applying laws of India; that the intention of the parties
~mder the agreement was always to remain subject to
Indian laws and not to contravene them; that an award
which is said to be against public policy can be permitted
to be challenged in India even though the seat of
8 arbitration is outside India; and that since the appellants
are seeking refund of amount of cess, royalties, service
tax, all matters of public money in India, the jurisdiction
of the Indian courts cannot be excluded. Hence, the
instant appeal.
C
Allowing the appeal, the Court
HELD: 1. The conclusion arrived at by the High Court
that the applicability of Arbitration Act, 1996 to the
arbitration agreement has not been excluded, cannot be
o upheld. The petition filed by respondents under Section
34 of the Arbitration Act, 1996. in the High Court is not
maintainable. The conclusion of the High Court that even
though the arbitration agreement would be governed by
the laws of England and that juridical seat of arbitration
E would· be in London, Part I of the Arbitration Act would
still be applicable as the laws governing the substantive
contract are Indian Laws, is overruled and set aside. In
the event, a final award is made against the respondent,
the enforceability of the same in India, can be resisted on
F the ground of Public Policy. The conclusion of the High
Court that in the event, the award is sought to be
enforced outside India, it would leave the Indian party
remediless is without any basis as the parties have
consensually provided that the arbitration agreement will
be governed by the English law. Therefore, the remedy
G against the award will have to be sought in England,
where the juridical seat is located. However, since
substantive law governing the contract is Indian Law,
even the Courts in England, in case the arbitrability is
challenged, will have to decide the issue by applying
H
RELIANCE INDUSTRIES LIMITED v. U.0.1.
459
Indian Law viz. the principle of public policy etc. as it A
prevails in Indian Law. [Paras 73, 74] [512-G; 513-A-F]
2.1. The essential dispute between the parties was as
to whether Part I of the Arbitration Act, 1996 would be
applicable to the arbitration agreement irrespective of the
B
fact that the seat of arbitration is outside India. To find a
conclusive answer to the issue as to whether applicability
of Part I of the Arbitration Act, 1996 has been excluded,
it would be necessary to discover the intention of the
parties for which the relevant Articles of the PSC are
C
analyzed. [Para 35] [489-G-H; 490-A]
Bhatia International vs. Bulk Trading S.A. & Anr.:2002
(2) SCR 411: (2002) 4 sec 105- relied on.
2.2. Articles 32.1 and 32.2 deal with applicable law
D
and language of the contract as is evident from the
heading of the Article which is 'Applicable Law and
Language of the Contract'. Article 32.1 provides the
proper law of the contract i.e. laws of India. Article 32.2
makes a declaration that none of the provisions
contained in the contract would entitle either the
Government or the Contractor to exercise the rights,
privileges and powers conferred upon it by the contract
E
in a manner which would contravene the laws of India.
Article 33 makes very detailed provision with regard to
the resolution of disputes through arbitration. The two
Articles do not overlap - one (Art.32) deals with the proper
law of the contract, the other (Art.33) deals with ADR, i.e.
consultations between the parties; conciliation; reference
F
to a sole expert and ultimately arbitration. Under Article
33, at first efforts should be made by the parties to settle
G
the disputes among themselves (33.1). If these efforts fail,
the parties by agreement shall refer the dispute to a sole
expert (33.2). The provision with regard to constitution of
the arbitral tribunal provides that the arbitral tribunal shall
consist of three arbitrators (33.4). This article also
H
460
SUPREME COURT REPORTS
[2014] 6 S.C.R.
A provides that each party shall appoint one arbitrator. The
arbitrators appointed by the parties shall appoint the third
arbitrator. In case, the procedure under Article 33.4 fails,
the aggrieved party can approach the Permanent Court
of Arbitration at Hague for appointment of an arbitrator
B (33.5). Further, in case the two arbitrators fail to make an
appointment of the third arbitrator within 30 days of the
appointment of the second arbitrator, again the Secretary
General of the Permanent Court of Arbitration at Hague
may, at the request of either party appoint the third
c arbitrator. Thus, the Permanent Court of Arbitration at
Hague can be approached for the appointment of the
arbitrator, in case of default by any of the parties. This,
is a strong indication that applicability of Arbitration Act,
1996 was excluded by the parties by consensus. Further,
0 the arbitration proceedings are to be conducted in
accordance with the UNCITRAL Rules, 1976 (33.9). It is
specifically provided that the right to arbitrate disputes
and claims under this contract shall survive the
termination of this contract (33.10). Article 33.12 provides
that venue of the arbitration shall be London and that the
E arbitration agreement shall be governed by the laws of
England. It appears, that by a Final Partial Consent Award,
the parties have agreed that the juridical seat (or legal
place of arbitration) for the purposes of arbitration initiated
under the claimants' notice of arbitration shall be
F London, England. [Paras 37, 38, 39] [490-G-H; 491-A-H;
492-A-C]
2.3. Upon a meaningful reading of the said Articles
of the PSC, that the proper law of the contract is Indian
G Law; proper law of the arbitration agreement is the law
of England. [Para 40] [492-D]
2.4. The submission that the intention of the parties
was never to exclude the applicability of Arbitration Act,
1996; and that the expression "laws of India" under
H
RELIANCE INDUSTRIES LIMITED v. U.0.1.
461
Article 32.2 would also include the Arbitration Act, 1996,
A
is without any merit. The expression "laws of India" as
used in Article 32.1 and 32.2 have a reference only to the
contractual obligations to be performed by the parties
under the substantive contract i.e. PSC. In other words,
B
the provisions contained in 33.12 are not governed by the
provisions contained in Article 32.1. Article 32.1 has been
made subject to the provision of Article 33.12. Article
33.12 specifically provides that the arbitration agreement
shall be governed by the laws of England. The two
Articles are particular in laying down that the contractual c
obligations with regard to the exploration of oil and gas
under the PSC shall be governed and interpreted in
accordance with the laws of India. In contra-distinction,
Article 33.12 specifically provides that the arbitration
agreement contained in Article 33.12 shall be governed
0
by the ',laws of England. Therefore, the conclusion is
inescapable that applicability of Arbitration Act, 1996 has
beel) ruled out by a conscious decision and agreement
of the parties. The High Court had no jurisdiction to
entertain the petition under Article 34 of the Arbitration
Act, 1996.[Para 41] [492-E-H; 493-A-B]
Bhatia International vs. Bulk Trading S.A. & Anr. 2002
(2) SCR 411: (2002) 4 sec 105 - relied on.
E
2.5. Article 33 provides for ADR-its limited application
F
is to dispute resolution through arbitration as opposed
to civil litigation. Therefore, there is no violation of 32.2,
as Arbitration Act, 1996, in fact signifies Parliamentary
sanction of ADR. In fact, Article 32.3 indicates that
obligations under PSC and Arbitration Agreement are
G
separate. Hence, it is provided that English shall be the
language of the Contract. Followed by the stipulation that
English shall also be the law of arbitral proceedings.
Therefore, the conclusion of the High Court that PSC is
a composite contract is not in tune with the approved
H
provisions of the PSC. This separateness is further
462
SUPREME COURT REPORTS
[2014] 6 S.C.R.
A emphasized by Article 32.1 by making the provision
"subject to the provision of Article 33.12". Laws of India
have been made applicable to the substantive contract.
Law of England govern the Dispute Resolution
Mechanism. Provision for Arbitration is a deliberate
s election of remedy other than usual remedy of a civil suit.
The ADR mechanism under the Arbitral Laws of different
nations is legally and jurisprudentially accepted,
sanctified by the Highest Law Making Bodies of the
member States, signatories to the New York Convention.
c India is not only a signatory to the New York Convention,
but it has taken into account the UNCITRAL Model Laws
and the UNCITRAL Rules, whilst enacting the Arbitration
Act, 1996. Therefore, it cannot be said that the Law of the
Contract is also the Law of the Arbitration
0 Agreement.[Para 42] [493-C-H]
2.6. Once the parties had consciously agreed that the
juridical seat of the arbitration would be London and that
the arbitration agreement will be governed by the laws of
England, it was no longer open to them to contend that
E the provisions of Part I of the Arbitration Act would also
be applicable to the arbitration agreement. [Para 43] [494B, CJ
Videocon Industries Limited vs. Union of India & Anr.
F 2011 (8) SCR 569: (2011) 6 sec 161- relied on.
G
Yograj Infrastructure Limited Vs.
Ssang Yong
Engineering and Construction Company Limited (2011) 9
SCC 735; Enercon (India) Ltd. & Ors. vs. Enercon GMBH &
Anr. 2014(1) Arb.LR 257 (SC) - referred to.
A vs. B 2007(1) All ER (Comm) 591; Mis Dozco India
P. Ltd. Vs. Mis Doosan lnfracore Co. Ltd. (2009) 3 ALR 162;
C Vs. D [2008] 1 Lloyd's Law Rep 239; SulameRica CIA
Nacional De Seguros SA vs. Enesa Engenharia SA - Enesa
H (2012) WL 14764 - referred to.
RELIANCE INDUSTRIES LIMITED v. U.0.1.
463
2.7. The submission that the issues involved relate
A
to violation of public policy of India, thus, the applicability
of Part I of the Arbitration Act cannot be excluded even if
the seat of arbitration is London; that it would make no
difference that the arbitration agreement specifically
provides for the arbitration agreement to be governed by
B
the Laws of England; that proper law of the contract
would be relevant to determine the question as to
whether the interim final award would be amenable to
challenge under Section 34 of the Arbitration Act, 1996
runs counter to the well settled law in India as well as in c
other jurisdictions.[Para 57] [501-D-H]
2.8. In the instant case, the parties have by
agreement provided that the juridical seat of arbitration
will be in London. On the basis of the said agreement,
necessary amendment has been made in the PSCs. On D
the basis of the agreement and the consent of the parties,
the Arbitral Tribunal has made the "Final Partial Consent
Award" fixing the juridical seat (or legal place) of
arbitration for the purposes of arbitration initiated under
the claimants notice of arbitration in London, England.
E
The award also records that any hearing in the arbitration
may take place in Paris, France, Singapore or any other
location the tribunal considers convenient. Article 33.12
stipulates that arbitration proceedings shall be conducted
in English language. It is also agreed by the parties that
F
tt-;e terms and conditions of the arbitration agreement in
Article 33 of the PSCs shall remain in full force and effect
and be applicable to the arbitration proceedings. The
arbitration agreement contained in Article 33 shall be
governed by the laws of England. A combined effect of G
all these factors would clearly show that the parties have
by express agreement excluded the applicability of Part
I of the Arbitration Act, 1996 (Indian) to the arbitration
proceedings. [Para 58, 34] [489-F-G; 502-D-G]
H .
464
SUPREME COURT REPORTS
[2014] 6 S.C.R.
A
Venture Global Engineering vs. Satyam Comp.JJ/er.
Services Ltd. 2008 (1 ) SCR 501: (2008) 4 SCC 190 - held
inapplicable.
2.9. In the instant case, there is no danger of violation
8 of any statutory provisions. Prima facie, it appears that
there is no challenge to the Gazette Notification. In fact,
claim statement shows that the amounts of royalties/cess
levied have been paid. Prayer is for reimbursement of the
amounts paid, based on Articles 15.6 and 15.7 of the PSC.
There also seems to be a claim for making necessary
C revisions and adjustment to the contract to off-set the
effect of any changes in the law. There is no apparent or
so patently obvious violation of Indian Laws in any of
these claims. The basis for filing the petition under
Section 34 is that the appellants are bound to obey the
D Laws of the country. The appellants have nowhere
claimed to be exempted from the Laws of India. they
claim that the Government of India: party to the Contract,
i.e., PSC failed to seek and obtain exemption as stipulated
in the contract. Whether or not the claim has substance
E is surely an arbitral matter. It is not the case of the
appellants that they are not bound by the Laws of India,
relating to the performance of the contractual obligations
under the PSCs. The arbitration agreement· cannot be
jettisoned on the plea that award, if made against the
F Government of India, would violate Public Policy of India.
G
H
Merely because the Arbitral Tribunal has held that claims
are arbitral does not mean that the claims have been
accepted and an award adverse to India has been given.
[Para 59] [503-E-H; 504-A-C]
2.10. The High Court failed to distinguish between
the law applicable to the proper law of the contract and
proper law of the arbitration agreement. The High Court
also failed to notice that by now it is settled, in almost all
international jurisdictions, that the agreement to arbitrate
RELIANCE INDUSTRIES LIMITED v. U.0.1.
465
is a separate contract distinct from the substantive
A
contract which contains the arbitration agreement. This
principle of severability of the arbitration agreement from
the substantive contract is indeed statutorily recognized
by Section 16 of the Arbitration Act, 1996. A bare perusal
of the s.16(1) would show that the arbitration agreement
B
is independent of the other terms of the contract. Further,
even if the contract is declared null and void, it would not
lead to the foregone conclusion that the arbitration
clause in invalid. [Paras 61] [504-D-F; 505-B]
Reva Electric Car Company P. Ltd. vs. Green Mobil 2011 c
(13 ) SCR 359: (2012) 2 SCC 93; Today Homes and
Infrastructure Pvt. Ltd. vs. Ludhiana Improvement Trust and
Anr. (2013) 7 SCALE 327; Enercon (India) Ltd. & Ors. vs.
Enercon GMBH & Anr. 2014(1) Arb.LR 257 (SC); World
Sport Group (Mauritius) Ltd. Vs. MSM Satellite (Singapore)
D
PTC Ltd. Civil Appeal No. 895 of 2014 - referred to.
2.11. The principle of separability permits the parties
to agree that law of one country would govern to the
substantive contract and laws of another country would
E
apply to the arbitration agreement. The parties can also
agree that even the conduct of the reference would be
governed by the law of another country. This would be
rare, as it would lead to extremely complex problems. It
is expected that reasonable businessman do not intend
F
absurd results. In the instant case, the parties had by
agreement provided that the substantive contract (PSC)
will be governed by the laws of India. In contradistinction,
it was provided that the arbitration agreement will be
governed by laws of England. There was no scope for G
any confusion of the law governing the PSC with the law
governing the arbitration agreement. Therefore, the
conclusions recorded by the High Court that the
applicability of the English Law would be limited in its
application only to the conduct of the reference, cannot
be accepted. [Para 62, 63] [505-D-G; 506-A]
H
466
SUPREME COURT REPORTS
[2014] 6 S.C.R.
A
2.12. Article 32.2 would have no impact on the
designated juridical seat as well as governing law of the
arbitration agreemerit. This would become evident from
a perusal of the Final Partial Consent Award, signed by
all the three members of the arbitral tribunal recording
B that the juridical seat of the arbitration initiated under the
Claimant's Notice shall be" London, England. [Para 65]
[506-F-G]
2.13. The submissions that the seat of arbitration
shall be in India as the PSC is governed by the law of
C lndia; that laws of India would include the Arbitration Act,
1996, thus, irrespective of the provisions contained in
Article 33.12, Arbitration Act, 1996 would be applicable to
arbitration proceedings; and that the English law would
be applicable only in relation to the conduct o'f the
D arbitration upon the passing of the Partial Final Award,
cannot be accepted. Article 32.1 itself provides that it shall
be subject to the provision of Article 33.12. Article 33.12
provides thS!t the arbitration agreement contained in this
Article shall be governed by the laws of England. The
E term 'laws of England' cannot be given a restricted
meaning confined to only curial law. It is permissible
under law for the parties to provide for different laws of
the contract and the arbitration agreement and the curial
law. [Para 66] [506-H; 507-A-D]
F
2.14. The situation in the instant case was that it was
open to the parties to agree that the law governing the
substantive contract (PSC) would be different from the
law governing the arbitration agreement. Article 32.1
G specifically provides that the performance of the
contractual obligations under the PSC would be
governed and interpreted under the laws of India. So far
as the alternative dispute redressal agreement i.e. the
arbitration agreement is concerned, it would be governed
by laws of England. There is no basis on which the
H
RELIANCE INDUSTRIES LIMITED v. U.0.1.
467
respondents can be heard to say that the applicability of A
laws of England related only to the conduct of arbitration
reference. The law governing the conduct of the
·arbitration is interchangeably referred to as the curial law
or procedural law or the lex tori. It cannot be said that the·
Arbitration Act, 1996 has not been excluded by the parties
B
by agreement. Thus, the conclusions by the High Court
that reference to laws of England is only confined to the
procedural aspects of the conduct of the arbitration
reference, cannot be approved. [Para 67,71) [507-G-H;
508-A-B; 512-A-B]
C
.
~
Mis Dozco India P. Ltd. Vs. Mis Doosan lnfracore Co. Ltd.
(2009) 3 ALR 162 - referred to.
Law and Practice of Commercial Arbitration in
England, by Mustill and Boyd, 2nd Edn. - referred to.
D
2.15. It cannot be said that since the issues involved
relate to the public policy of India, Part I of the Arbitration
Act, 1996 would be applicable. Applicability of Part I of
Arbitration Act, 1996 is not dependent on the nature of
E
challenge to the award. Whether or not the award is
challenged on the ground of public policy, it would have
to satisfy the pre-condition that the Arbitration Act, 1996
F
is applicable to the arbitration agreement. The High Court
committed a jurisdictional error in holding that the
provisions contained in Article 33.12 is relevant only for
the determination of the curial law applicable to the
proceedings. The parties by agreement have provided
that the juridical seat of the arbitration shall be in London.
Necessary amendment has also been made in the PSCs,
a~ recorded by the Final Partial Consent Award. Further,
G
the Arbitration Act, 1996 does not define or mention
juridical seat. The term 'iuridica/ seat' on the other hand
is specifically defined in Section 3 of the English
Arbitration Act. Therefore, this would clearly indicate that
the parties understood that the arbitration law of England
H
468
SUPREME COURT REPORTS
[2014) 6 S.C.R.
A would be applicable to the arbitration agreement. [Para
72) [512-C-F]
Bharat Aluminium Company Vs. Kaiser Aluminium
Technical Services lnc.2012 (12 ) SCR 327:(2012)9 SCC
8 552; State of Gujarat & Anr. Vs. Justice R.A. Mehta (Retired)
& Ors. 2013 (1 ) SCR 1 :(2013) 3 SCC 1- referred to.
Tamil Nadu Electricity Board vs. ST-CMS Electric Co.
Pvt. Ltd. (2007) 2 All ER (Comm) 701 - referred to.
c
Case Law Reference:
(2007) 2. All ER (Comm) 701
Referred to Para 21
(2011 > 9 sec 135
Referred to Para 28
(2009) 3 ALR 162
Referred to Para 28 50
D
2012 (12 ) SCR 327
Referred to Para 28, 29
2013 (1 ) SCR 1
Referred to Para 29
2011 (8) SCR 569
Relied on
Para 34, 36,
41
E
2011 (8) SCR 569
Relied on
Para 47,48,
51
(2008) 1 Lloyd's Law Rep 239 Referred to Para 54
(2012) WL 14764
Referred to Para 55
F
2008 (1 ) SCR 501
Held
Para 59
inapplicable
2011 (13) SCR 359
Referred to Para 61
G
2013 (7) SCALE 327
Referred to Para 61
2014 (1) Arb. LR 257 (SC)
Referred to Para 61
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
5765 of 2014.
H
RELIANCE INDUSTRIES LIMITED v. U.0.1.
.469
From the Judgment and Order dated 22.03.2013 in OMP
A
No. 46/2013 of the High Court of Delhi at New Delhi.
Dr. Abhishek Manu Singhvi, Sameer Parekh, Madhur
Baya, Faisal SherwaniM, Utsav Trivedi (For Parekh & Co.,), for
the Appellant.
A.K. Ganguli, Abhijeet Sinha, Sangeeta Mandal, Mamta
Tewari, Swati Sinha, Mr. Vishal Gehrana (For Mandal & Co.,),
for the Respondent.
The Judgment of the Court was delivered by
SURINDER SINGH NIJJAR, J. 1. Leave granted.
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2. This appeal is directed against the judgment of the High
Court of Delhi at New Delhi rendered in OMP No.46 of 2013
dated 22nd March, 2013. By the aforesaid judgment, the Delhi
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Higfi Court has allowed the petition filed by the respondent
under Section 34 of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as 'the Arbitration Act, 1996'),
challenging the Final Partial Award dated 12th September,
2012. By the aforesaid Award, the objection raised by the Union
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of India relating to the arbitrability of the claims made by the
petitioner in respect of Royalties, Cess, Service Tax and CAG
Audit have been rejected.
3. Before we discuss the legal issues, it would be pertinent
to make a very brief note of the relevant facts.
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4. The parties had entered into Two Production Sharing
Contracts dated 22nd December, 1994 (as amended by
Amendment Agreement No.1 and Amendment Agreement
No.2) (hereinafter referred to as "PSC" or "PSCs") as aJ1d when
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appropriate. These two PSCs provide for the exploration and
production of petroleum from the Mid and South Tapti Fields
(hereinafter referred to as ''Tapti" or "Tapri Field") and for the
exploration and production of petroleum from Panna and Mukta
Fields which shall be hereinafter referred to either as "Panna
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A
Mukta" or "Panna Mukta fields". The two PSCs shaWbe referred
to. ''Tapti PSC" and "Panna Mukta PSC," respectively.
5. One of the PSCs was entered into with Reliance
Industries Limited (RIL), the appellant, a body corporate
8
established under the laws of India. It is a major Indian
multinational and the largest private sector company in 1ndia,
with interests in activities including exploration and production
of oil and gas, petroleum refining and marketing
petrochemicals, textiles, retail and special economic zones. The
other PSC was entered into with BG Exploration and
C Production India Limited ("BG"), a body corporate established
under the laws of the Cayman Islands. It is a company forming
part of BG Group, an international energy group headquartered
in the United Kingdom with business operations in numerous
countries. In 2002, BG Group acquired the share capital of
D · Enron Oil and Gas India Limited (EOGIL, a company formerly
part of the Enron group of companies). Upon its acquisition on
15th February, 2003, the name of EOGIL was changed to BG
Exploration and Production India Limited.
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6. ONGC is a state-owned oil and gas company in India
in which the Government of India holds a 74.14 % equity stake.
It produces various petroleum products including crude oil,
natural gas and LPG. These three companies are together
defined as the "Contractor" (in the PSCs Clause 1.23).
7. The two PSCs provide a detailed procedure for
Alternative Dispute Redressal Mechanisms. Articles 32 and 33
of the PSCs are relevant for this purpose. These Articles
provide as under :
"Article 32 - Applicable Law and Language of the
Contract.-
32.1 Subject to the provisions of Article 33.12, this Contract
shall be governed and interpreted in accordance with the
laws of India.
RELIANCE INDUSTRIES LIMITED v. U.0.1.
471
[SURINDER SINGH NIJJAR, J.]
32.2 Nothing in this Contract shall entitle the Government
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or the Contractor to exercise the rights, privileges and
powers conferred upon it by this Contract in a manner
which will contravene the laws of India.
32.3 The English language shall be the language of this
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Contract and shall be used in arbitral proceedings. All
communication, hearings or visual materials or documents
relating to this Contract sh~ll be in English.
Article 33 - Sole Expert, Conciliation and Arbitration
33.1 The Parties shall use their best efforts to settle
amicably all disputes, differences or claims arising out of
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or in connection with any of the terms and conditions of
this Contract or concerning the interpretation or
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performance thereof.
33.2 Except for matters which, by the terms of this Contract,
the Parties have agreed to refer to a sole expert and any
other matters which the Parties may agree to so refer, any
dispute, difference or claim arising between the Parties
hereunder which cannot be settled amicably may be
submitted by any Party to arbitration pursuant to Article
33.3. Such sole expert shall be an independent and
impartial person of international standing with relevant
qualifications and experience appointed by agreement
between the Parties. Any sole expert appointed shall be
acting as an expert and not as an arbitrator and the
decision of the sole expert on matters referred to him shall
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be final and binding on the Parties and not subject to
arbitration. If the Parties are unable to agree on a sole
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expert, the disputed subject matter may be referred to
arbitration.
33.3 Subject to the provisions herein, any unresolved
dispute, difference or claim which cannot be settled
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amicably within a reasonable time may, except for those
referred to in Article 33.2, be submitted to an arbitral
tribunal for final decision as hereinafter provided.
33.4 The arbitrar tribunal shall consist of three arbitrators.
The Party or Parties instituting the arbitration shall appoint
one arbitrator and the Party or Parties responding shall
appoint another arbitrator and both Parties shall so advise
the other Parties. The two arbitrators appointed by the
Parties shall appoint the third arbitrator.
33.5 Any Party may, after appointing an arbitrator, request
the other Party (ies) in writing to appoint the second
arbitrator. If such other Party fails to appoint an arbitrator ·
within forty-five (45) days of receipt of the written request
to do so, such arbitrator may, at the request of the first
Party, be appointed by the Secretary General of the
Permanent Court of Arbitration at the Hague, within fortyfive (45) days of the date of receipt of such request, from·
amongst persons who are not nationals of the country of
any of the Parties to the arbitration proceedings.
33.6 If the two arbitrators appointed by the Parties fail to
agree on the appointment of the third arbitrator within thirty
(30) days of the appointment of the second arbitrator and
if the Parties do not otherwise agree, the Secretary
General of the Permanent Court of Arbitration at the Hague
may, at the request of either Party and in consultation with
both, appoint the third arbitrator who shall not be a national
of the country of any Party.
33. 7 If any of the arbitrators fails or is unable to act, his
successor shall be appointed in the manner set out in this
Article as if he was the first appointment.
33.8 The decision of the arbitration tribunal and, in the
case of difference among the arbitrators, the decision of
the majority, shall be final and binding upon the Parties.
RELIANCE INDUSTRIES LIMITED v. U.0.1.
473
[SURINDER SINGH NIJJAR, J.]
33.9 Arbitration proceedings shall be conducted in
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accordance with the arbitration rules of the United Nations
Commission on International Trade Law (UNCITRAL) of
1985 except that in the event of any conflict between these
rules and the provisions of this Article 33, the provisions
of this Article 33 shall govern.
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33.10 The right to arbitrate disputes and claims under this
Contract shall survive the termination of this Contract.
33.11 Prior to submitting a dispute to arbitration, a Party
may submit the matter for conciliation under the UNCITRAL
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conciliation rules by mutual agreement of the Parties. If the
Parties fail to agree on a conciliator (or conciliators) in
accordance with the rules, the matter may be submitted for
arbitration. No arbitration proceedings shall be instituted
while conciliation proceedings are pending and such
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proceedings shall be concluded within sixty (60) days.
33.12 The venue of conciliation or arbitration proceedings
pursuant to this Article, unless the Parties otherwise agree,
shall be London, England and shall be conducted in the
English Language. The arbitration agreement contained in
this Article 33 shall be governed by the laws of England.
Insofar as practicable, the Parties shall continue to
implement the terms of this Contract notwithstanding the
initiation of arbitral proceedings and any pending claim or
dispute.
33.13 The fees and expenses of a sole expert or
conciliator appointed by the Parties shall be borne equally
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by the Parties. Assessment of the costs of arbitration
including incidental expenses and liability for the payment
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thereof shall be at the discretion of the arbitrators."
8. In accordance with Article 33.12, the arbitral
proceedings were to be held in London as the neutral venue.
At the time of entering into the PSCs, none of the parties were
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A domiciled in U.K. In fact, subsequently, the venue of the arbitral
proceedings was shifted to Paris and again re-shifted to
:..ondon. Consequently on 24th February, 2004, the parties to
the PSCs entered into an agreement amending tl1-e PSCs,
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whereby it was stated that :~
"4. Applicable Law and Arbitration :
Except the change of venue/seat of Arbitration from
London to Paris, the Articles 32 and 33 of the Contract
shall be deemed to be set out in full in this Agreement
mutatis mutandis and so that references therein to the
Contract shall be references to this Agreement."
9. It appears that certain disputes and differences have
arisen between the parties, under or in connection with the
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PSCs. Consequently, the appellant issued a notice of
arbitration dated 16th December, 2010. The disputes,
differences and claims are common to both the Tapti PSC and
Panna & Mukta PSC. The appellant claims that all attempts to!
resolve the disputes with the respondent amicably through .
E correspondences and meetings have failed. The disputes,
differences and claims arising out. of or in connection with the
PSCs have been summarized in paragraph 6 of the notice of
arbitration.
10. Pursuant to the aforesaid notice, the arbitral tribunal
F was duly constituted on 29th July, 2011. Under Article 33.12,
the venue of arbitration is in London. The parties confirmed the
term of appointment of the Arbitral Tribunal on 29th July, 2011,
signed by the Chairman on 15th August, 2011. A substantive
nearing was held between 21st May, 2012 to 29th May, 2012
G in Singapore. Thereafter, on the basis of the amenqment made
in the PSC as noticed above, by agreement of the parties, the
arbitral tribunal made the "Final Partial Consent Award" on 14th
September, 2011. In the aforesaid award, it is recorded as
under:
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RELIANCE INDUSTRIES LIMITED v. U.0.1.
475
[SURINDER SINGH NIJJAR, J.]
"3. Final Partial Award as to Seat
3.1 Upon the agreement of the Partieis, each represented
by duly authorized representatives and through counsel, the
Tribunal hereby finds, orders and awards:
(a) That without prejudice to the right of the Parties to
subsequently agree otherwise in writing, the juridical seat
(or legal place) of arbitration for the purp·oses of the
arbitration initiated under the Claimants' Notice of
Arbitration dated 16th December, 2010 shall be London,
England.
(b) That any hearings in this arbitration may take place in
Paris, France, Singapore or any other location the Tribunal
considers may be convenient.
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(c) That, save as set out above, the terms and conditions
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of the arbitration agreements in Article 33 of the PSCs
shall remain in full force and effect and be applicable in
this arbitration."
11. This Consent Award was duly signed by Mr.
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Christopher Lau SC (Chairman), Mr. Peter Leaver QC (Coarbitrator) and Mr. Justice B.P. Jeevan Reddy (Co-arbitrator).
12. Pursuant to Clause 28 of the terms of appointment, the
Chairman of the Tribunal is empowered to m.ake interlocutory
orders and consult other members of the tribunal if he considers
appropriate or one of the parties requests that a decision be
given by the whole tribunal. Various directions/ orders/
clarifications were made by the Chairman, with the concurrence
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of the other members of the tribunal. Pursuant to the above
directions/orders/clarifications, the claimants I Appellants
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served upon the tribunal its statement of claim and amendment
to the statement of claim dated-5th August, 2011 and claimants'
revised amendment to the statement of claim dated 19th
January, 2012. Similarly, the Respondent served upon the
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A Tribunal its statement of defence dated 31st January, 2012 and
additional statement on behalf of Respondent dated 10th April,
2012 pursuant to procedural order dated 13th March, 2012. The
aforesaid procedural order dated 13th March, 2012 as
amended by directions dated 15th May, 2012 set out the list
B of issues (the May 2012 issues) to be heard and be determined
by the tribunal at the hearing fixed to c9mmence on 21st May,
2012 and to conclude on 29th May, 2012 ("the May 2012
hearing"). The parties served upon each other witness
statement of their witnesses. The documents relied upon by both
c the parties were also placed on record.
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13. The Partial Final Award dated 12th September, 2012
records the claimant's claims for relief as set out in Section E
of the Statement of the Scheme. Paragraph 30.3 of the
Statement of Claim reads as follows:-
"(1) a declaration that, for the purposes of Article 15.6.1,
the value of Gas at the wellhead should be calculated by
deducting from the sales price at the Delivery Point an
amount reflecting all of the costs which are incurred
between the wellhead and the Delivery point regardless of
whether such costs are classified as capital expenditure
or operating expenditure and regardless of whether such
costs are recoverable out of Cost Petroleum under Article
13 of the·PSCs.
(2) a declaration that, with effect from the date of any partial
or final award to the termination of the PSCs, and pursuant
to Article 15.6.1 of the PSCs, the Government is required
to reimburse any excess royalties paid as a result of the
exclusion of post-wellhead capital expenditure from
wellhead value calculations made pursuant to the Gazette
Notification or pay damages in the same amount for failure
to procure an exemption in resf)ect of such excess
royalties.
(3) a declaration that the Government is liable to reimburse
RELIANCE INDUSTRIES LIMITED v.